INVESTMENT in Pakistan, specifically foreign investment, aptly reflects the phrase ‘so near yet so far’ — ceremonial signings of MoUs galore, yet there is not much to rejoice over when one looks at the real investment numbers. An implication of this is that Pakistan has one of the world’s lowest investment-to-GDP ratios, even within the South Asian region, with repercussions for the entire economy.
In hindsight, this predicament is a tad surprising given certain attributes like Pakistan being a market of 250 million (and increasing) people. Yet we find that even local investors prefer destinations like Dubai. How does one unravel this puzzle?
Let’s turn to John Maynard Keynes — perhaps the most well-known figure in 20th-century economics. In chapter 22 of his magnum opus The General Theory of Employment, Interest and Money (1936), he states: “But I suggest that the essential character of the trade cycle … is mainly due to the way in which the marginal efficiency of capital fluctuates. … [T]he marginal efficiency of capital depends, not only on the existing abundance or scarcity of capital-goods and the current cost of production of capital-goods, but also on current expectations as to the future yield of capital-goods. … But, as we have seen, the basis for such expectations is very precarious.”
Keynes introduces the reader to three important attributes of investment which give rise to fluctuations (sometimes sudden and violent) in economic activity — the investor is interested in what his/ her invested capital is bringing forth (‘marginal efficiency’), investment is affected by relative abundance or scarcity of capital (capital is just not credit, something Pakistan’s seths have historically been fixated on in their clamour for subsidised credit), and most importantly, the ‘precarious’ basis of their expectations.
Without a system that addresses the causes of uncertainty, there will be little investment.
From a public policy and economic growth point of view, the most important question, then, is how to make the overall business environment less precarious? The other way of asking this is — what can a government do to induce a certain modicum of certainty? It is an important question to dwell on because the direction of causality usually runs from this attribute to the other two, ie, less risk leads to higher investment, higher capital formation and higher capital efficiency.
So how risky is Pakistan?
We begin with two recent instances. The first one relates to a person who bought about 137 kanals of land in the early 2000s to build his farmhouse. For some time, he was reportedly under pressure to sell his farmhouse but kept refusing. A few months ago, on returning from a short trip abroad, he was astonished to find that his property had been occupied by strangers, who claimed that it had been legally sold to them by him, with sale deeds containing his signature.
The second instance is also a recent one. A journalist on YouTube, who is often critical of the security state, found his bank account frozen like hundreds of others. But here is the astounding part. The journalist in question apparently has a penchant for parrots. One fine day, the poor chap who sold him parrots, and who had nothing to do with the journalist’s views or politics, found that his bank account has been frozen too.
In the first instance, the fraudulent property confiscation did not take place in some remote part of Pakistan. It happened in Islamabad, the capital of a nuclear-armed country and on which trillions are spent to govern hardly 906 square kilometres of land. A committee was formed by the highest administrative authority as news of this daylight robbery spread. Yet there were concerns when a member did not find anything wrong in the transaction. If property rights, one of the main tenets of economic growth and investment, cannot be protected even in the capital, what of the rest of the country?
In the second instance, the unmistakable feeling that an observer gets is that the country is being run by some sadistic, petty and insecure minds. When a person opens a bank account, it is not just a vault where his earnings rest; rather, it’s an agreement based on trust that his earnings are secure from arbitrary confiscations and theft, guaranteed by the state. The message in this instance is that nothing is secure; the government can breach the trust anytime it wants under a flimsy pretext. It does not respect any rights or agreements and can confiscate a person’s earnings whenever it deems fit.
These two instances are basically a microcosm of what has been happening in Pakistan for decades. Take the issue of property rights. A major portion of the millions of pending cases in courts across the country relate to disputes over property because there really is no mechanism for ensuring its sanctity. That these remain pending in courts for long also reflects the poor quality of the justice system, something that investors around the globe value.
When combined with other factors, such as the security situation, the quality of service provision and infrastructure, frequent political turbulence, excessive regulations, etc, and while keeping Keynes’ quote in perspective, one cannot but conclude that in aggregate, Pakistan is a highly risky country where it is precarious to form expectations of a future that would make life easy for investors. Turmoil is frequent, and continuity missing.
We can dangle the $6 trillion mineral riches or showcase samples in a suitcase, and hold a ton more of ‘road shows’, but without a system that addresses the issues giving rise to aggregate uncertainty, there would be no considerable investment in Pakistan (especially long-term investment). When major investments like Karkey and Reko Diq land in arbitration courts, everyone takes note. Investors will always be wary of the long haul in such circumstances and prefer less risky options such as buying our debt in domestic and global financial markets. Simply put, prioritise substance over form.
The writer is an economist. His current research focuses on long-term analysis of various issues plaguing Pakistan’s economy, economic reforms and history of economic thought.
Published in Dawn, November 14th, 2025
